Mcnally Sayaji Engineering ... vs Assistant Commissioner Of The ...
2021 Latest Caselaw 495 Cal/2

 in tHE HiGH court at calcutta
                 conStitutional Writ JuriSDiction
                          oriGinal SiDE

Present:

THE HON'BLE JUSTICE ARINDAM MUKHEREJEE

                               WPO 81 of 2020


           MCNALLY SAYAJI ENGINEERING LIMITED AND ANR.
                                   VERSUS
      ASSISTANT COMMISSIONER OF THE INCOME TAX, CIRCLE 1(1)
                         KOLKATA AND 6 OTHERS

  For the petitioners               ::   Mr. Sanjoy Bhowmik,
                                         Mr. A. D. Dey,
                                         Ms. Soma Chatterjee
                                                                  .....Advocates

  For the respondents                    Mr. Asok Bhaumik,

.....Advocate

Heard on : 11.01.2021 and 18.01.2021

Judgment on : 06.08.2021

Arindam Mukherjee, J. :

1) The petitioner No.1 (hereinafter also referred as the assessee) is a public

company within the meaning of the Companies Act, 2013. The assessee

filed its return of income for the assessment year 2018-19 on 30th

October, 2018 declaring a loss of Rs.37,37,26,818/- and consequently

claimed refund of the entire tax deducted at source amounting to WPO 81 of 2020

Rs.1,79,52,477/-. Thereafter, on 23rd September, 2019, the assessee

received a notice under the provisions of Section 143(2) of the Income Tax

Act, 1961 (hereinafter referred to as the said Act).

2) The assessee received another intimation from the respondent no.4 on

14th November, 2019 regarding the assessment under the provisions of

Section 143(1) wherein it was declared that the principal refund amount

to be Rs.1,79,52,480/- as assessed by the concerned Assessing Officer.

The total income tax refund for the assessee for the assessment year

2018-2019 after addition of interest of Rs. 17,95,240/- under the

provisions of Section 244A of the said Act was computed as Rs.

1,97,47,717/- . A refund sequence No.8770520703 was also mentioned in

the said intimation stating that the process of income tax return was

complete. The assessee on checking the refund status at the TIN-NSDL

website, however, found the following message displayed thereat, "Your

Assessing Officer has not sent the refund to the refund banker, please

contact your Assessing Officer." The assessed refund was, thus, not

refunded to the petitioner (assessee). The note appended to the said

intimation shows that the refund determined under Section 143(1) of the

said Act has been withheld as per provision of Section 241A.

3) After hearing the parties it appears that the matter can be decided only on

interpretation of the various provisions of the said Act and no factual

clarification is required. The matter was, therefor, finally heard out

without calling for affidavits to which none of the parties objected to.

WPO 81 of 2020

4) On behalf of the petitioner it is submitted that to invoke the provision of

Section 241A of the said Act, the Assessing Officer has to form an opinion

that the grant of refund is likely to adversely affect the revenue. Referring

to the note appended, it is submitted by the petitioner that the Assessing

Officer has not recorded any reason when and as to why he formed an

opinion that the refund is likely to adversely affect the revenue. It is also

submitted on behalf of the petitioner that despite making representations

dated 26th December, 2019, 6th and 8th January, 2020 seeking refund, no

refund of the assessee and/or any part thereof was made. The petitioner

was, therefor, compelled to file the present writ petitions.

5) It is further submitted on behalf of the petitioner that the petitioner

became entitled to refund on 14th November, 2019 when the assessment

was made. At that point of time there was no demand as against the

petitioner for which the refund could have been withheld under Section

241A. The demand to which the revenue is now referring to, for invoking

the provision of Section 245 of the said Act came into existence only on

27th February, 2020 that is about almost a year after the date when the

refund was required to be made. The concerned authority in any event

according to the petitioner could have withheld the refund on or after 14th

November, 2019.

6) On behalf of the revenue it is submitted that there is a total demand of

Rs.47,76,28,500/- as against the petitioner for different periods. Scrutiny

in respect of such periods is going on. The revenue as such is not liable to

make the refund in view of the provision of Section 245 of the said Act.

WPO 81 of 2020

Apart from this submission, revenue has cited no specific reason for

withholding the refund. No details have been provided to establish that

there was a demand either for a period prior to the refund having been

declared or at the time when the assessment for the relevant period was to

be made despite affording the revenue sufficient time to provide such

particulars by adjourning the matter. The only details provided was for a

period subsequent to the assessment and declaration of refund which was

non-existent at the time when the refund was declared upon completion of

assessment.

7) Upon perusal of documents submitted, I find that the instant case is

based on interpretation of few provisions of the said Act. Section 143(1)

read with Sections 143(2) and 143(3) of the said Act provide for

assessment on scrutiny proceedings initiated against the assessee. After

the assessment is done the question of payment of further tax with

penalty and interest or refund arises depending upon the assessment.

Section 241A of the said Act provides for withholding of refunds if the

Officer concerned finds that refund will have an adverse affect on the

revenue. In the instant case, the petitioner was issued a notice for refund

on 14th November, 2019 after the assessment on scrutiny proceeding for

the assessment year 2018-19 was completed but the refund was withheld

without assigning any reason. The assessment for the assessment year

2018-19 may have taken some time and was completed by 14th

November, 2019 when the refund was notified but at that point of time

WPO 81 of 2020

there was no other demand pending against the petitioner/assessee either

for a previous or subsequent period.

8) The very essence of passing of the order under Section 241A is

application of mind by the Assessing Officer to the issues which are

germane for withholding the refund on the basis of statutory prescription

contained in the said Section. The power of the Assessing Officer under

the provisions of the section 241A can be exercised not only after he forms

an opinion that the refund is likely to adversely affect the revenue and

thereafter with the prior approval of the Chief Commissioner or

Commissioner as an order for refund after assessment under Section

143(3) of the said Act pursuant to a notice under Section 143(2) is subject

to appeal or further proceeding. In the instant case, after notice for refund

was issued the refund was withheld with no reasons given.

9) From the judgment reported in Maple Logistics Pvt. Ltd. vs. Principal

Chief Commissioner of Income Tax 2020 420 ITR 258, as referred to

by the petitioner, Section 241A provides that where there is a refund

payable on the returns furnished under Section 143 (1) of the Act, and the

Assessing Officer is of the opinion that grant of refund is likely to

adversely affect the revenue, he may withhold the refund up to the date on

which the assessment is made, subject to reasons to be recorded in

writing and with the previous approval of the Principal Commissioner or

Commissioner, as the case may be. On a combined reading of Section 143

with Section 241A, it can be discerned that by virtue of the new proviso, it

is now mandatory to process the return under sub-section (1) of Section

WPO 81 of 2020

143, and proceed with grant of the refund determined therein, unless,

sufficient reasons exist under Section 241A prima facie demonstrating

that the grant of refund is likely to adversely affect the revenue.

10) The scope of the power under Section 241A is narrow, making it clear that

a speaking order is required to be passed culling out the reasons as to

how the grant of refund is likely to affect the revenue. The recording of

reasons to substantiate why such withholding is necessary and how the

refund will adversely affect recovery of subsequent revenue is essential.

"Reasons" have been described by the Hon'ble Supreme Court in AIR

1974 SC 87 Union of India vs. Mohan Lal Capoor, as "Reasons are the

links between the materials on which certain conclusions are based and

actual conclusions. They should reveal a rational nexus between the facts

considered and conclusions reached." No reasons were assigned by the

Officer concerned by referring to any materials that refund declared in

case of the petitioner/assessee on being actually made will adversely affect

the revenue. No demand as against the petitioner was pending on the

date when refund was notified. The petitioner/assess became entitled to

the refund immediately on completion of assessment and refund on being

notified. The Assessing Officer could not have kept the refund withheld to

link such refund with any demand against the petitioner for a subsequent

period when such demand was not in existence on the date when the

refund was notified.

11) The powers under this revenue friendly provision cannot be used in a

mechanical manner without application of mind, wherein the Assessing

WPO 81 of 2020

Officer being of the opinion that the grant of refund may make recovery of

pending demands. In that case refund can be withheld only after

recording reasons and obtaining approval of Principal Commissioner or

Commissioner as held in the judgment reported in Vodafone idea Ltd. vs.

DCIT reported in 421 ITR 253. The assessee must also be given an

opportunity of hearing before reasons are recorded for withholding the

refund under this Section. In absence of these proceedings being followed

the action of the Assessing Officer withholding refund is amenable to

judicial review by way of writ petition under Article 226 of the Constitution

of India.

12) Following the principle laid down in the judgment reported in Nazir

Ahmad vs. King Emperor AIR 1936 PC 253, "if a statute provides an act

to be done by a particular authority and in a particular manner, it should

only be done by that authority and in that manner or not at all.", the

Competent Officer being authorised under the statute to withhold the

refund if he has reasons to believe that the same will adversely affect the

revenue can or could have withheld the refund after the same had been

declared only after assigning reasons and not otherwise. In the instant

case, the Assessing Officer withheld the refund without assigning any

reason though the statute mandates for recording the same. Having not

done so the officer concerned has acted arbitrarily. The procedure followed

by the Assessing Officer does not also show the proper application of two

independent provisions as in Section 241A and Section 143 wherein once

a refund is declared after scrutiny proceedings and such refund is

WPO 81 of 2020

withheld, a reasoned order has to follow because the assessment is done

after production of materials and evidence required by the Assessing

Officer. That apart and in any event the petitioner/assessee is a public

limited company whose accounts are stringently scrutinized at the

internal level. It is, therefore, more so required to apply the provisions

more cautiously while withholding the refund after the same has been

declared on completion of assessment on scrutiny.

13) In the light of the discussion, analysis and findings made hereinabove, the

action on the part of the respondents in withholding of the refund for the

assessment year 2018-19 is not sustainable in law and is set aside and

quashed. The petitioner, is therefor, entitled to a mandatory order of

refund. The respondents are directed to refund the amount of

Rs.1,97,47,717/- within a period of four weeks from date with further

interest on the principal sum of Rs.1,79,52,480/- from the date upto

which interest has been added to the principal sum in arriving at the

figure of Rs. 1,97,47,717/- till actual refund as per the provisions of the

Income Tax Act, 1961. The respondents shall act on the basis of a server

copy of this order without insisting for a certified copy thereof while

processing the refund.

14) The writ petition WPO 81 of 2020 is allowed accordingly without any order as to costs. Urgent photostat certified copy of this judgment and order, if applied for, be supplied to the parties on priority basis after compliance with all necessary formalities.

(ARINDAM MUKHERJEE, J.)